UK laws that Indian acquirers need to know about

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D. Murali

Chennai, Oct. 18

Corus in the UK has said that it has received `a 455 pence-per-share cash proposal from the Tatas'.

The takeover proposal from Tata Steel Ltd is pegged at £4.1 billion. And it is learnt that `a firm recommended offer might be agreed by the end of the week'.

Business Line

catches up with Mr Pranav Sayta, Partner, Global Tax Advisory Services, Direct Tax, Ernst & Young, Mumbai, to know if there are significant differences in corporate laws that come into play in such deals? "There are no restrictions under the UK company law on the issue of shares of a UK company to non-residents," he says.


"In the UK, takeovers involving offers to the public are governed mainly by the City Code on Takeovers and Mergers (`Takeover Code'), EU (European Union) Takeover Directives and the Stock Exchange's Yellow Book."

These are in addition to company law provisions relating to insider dealings, and disclosure of directors' interests, explains Mr Sayta. "Then, there is the Financial Services and Markets Act, 2000, which inter alia, regulates the issue of investment advertisements and other matters."

One learns that the EU Directive came into force on May 20, 2004, and that it had to be implemented into national law by all Member-states by no later than May 20, 2006. "Aim of this Directive is to provide a framework of common laws for takeovers in the EU, address the barriers to takeovers and ensure an adequate level of protection for minority shareholders across the EU in public offers," elaborates Mr Sayta.

Has the UK implemented the Directive? "Yes, by means of a combination of interim statutory provisions and amendments to the Takeover Code," he states. "The UK Government decided to implement the Directive in Part 22 of the Company Law Reform Bill. Lest the Parliamentary process for the passage of the Bill overrun the May 20 deadline, the UK Government published, on May 2, the Takeovers Directive (Interim Implementation) Regulations 2006."

Laws of importance

On the much-focussed tax angle, Mr Sayta adds value by naming some of the specific regulations that are relevant to M&A (merger and acquisition) deals of the Tata-Corus type. The laws of importance are: the Income and Corporation taxes Acts of 1970 and 1988, the Taxation of Chargeable Gains Act of 1992, the Capital Allowances Act of 2001, Annual Finance Acts subsequent to the above consolidating acts, Value Added Tax Act of 1994 and subsequent Finance Acts, and the Stamp Act of 1981.

Interestingly, Mr Sayta draws our attention to other economic laws to be considered, beyond the taxation laws. "Under specific Rules of the Takeover Code, it is required that an offer includes a term providing that the offer will lapse if the European Commission initiates proceedings, or it is referred to the Competition Commission," he alerts. These, "prior to the final closing date of the offer or the date when the offer becomes unconditional as to acceptances, whichever is later."

What about the law on monopolies? "There are provisions in various laws under which the takeover of UK companies and businesses may be restricted," asserts Mr Sayta. Examples are the Fair Trading Act, the Industry Act, and licensing provisions (relating to particular industries such as banking, insurance and broadcasting). "Also, all provisions of UK law are subject to the provisions of the European Merger Control Regulation."

Related Stories:
Corus-Tata deal: An instance of how laws can constrict M&A
Merger is an option in Tata Steel-Corus talks
Corus countdown for Tata Steel offer period begins

(This article was published in the Business Line print edition dated October 19, 2006)
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